9911796707
TMI Blog1987 (9) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... erms stocks which were lying in 42 mills in the State of Andhra Pradesh. The tenders were floated on 23-10-1976. The assessee-company submitted tenders to lift bran from 42 mills and germs stocks from 38 mills within a period of 3 months from 5-2-1977 and 4-5-1977. The tenders were opened on 25-11-1976 and the assessee's tender was accepted. The acceptance of the tender was telegraphically communicated to the assessee by the FCI on 23-12-1976. So also the acceptance of the assessee-company's tender was intimated to the assessee-company by the FCI by its letter dt. 7-1-1977. In the said letter itself the assessee was asked to deposit an amount of Rs. 42,000 towards earnest money. Bran and germs already produced and held as on 4-2-1977 and likely to be produced in the co-operative/private rice mills mentioned in the Annexure to the agreement and belonging to the FCI for a period of 3 months from 5-2-1977, were the products agreed to be purchased by the assessee-company from the FCI. According to another term of the agreement the existing stocks as on 4-2-1977 should be lifted by the assessee-company within a week from the date of the agreement. However, the assessee-company failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adviser to the Government of India, was appointed arbitrator and after observing every formality required and after receiving the claim, the counter as well as a rejoinder and also after hearing the counsels on both sides, the learned arbitrator made an award dt. 26-2-1986. The arbitrator held that it was not open to the FCI to extend the time for the performance of the contract and to plead that the breach occurred on 8-8-1977, i.e., after the expiry of 15 days from 25-7-1977. He had recorded that the assessee-company committed breach of the agreement on 5-5-1977 itself. In another part of the award the arbitrator found that the FCI can claim only a sum of Rs. 1,07,531 against the assessee-company towards damages sustained by reason of the breach of the agreement (Rs. 1,06,381 + Rs. 1,150). He also held that the FCI was entitled to claim interest at 12 per cent on the said sum from the date of the award till the date of appointment. However, dealing with the issue whether the claim was barred by limitation the arbitrator clearly found in his award as follows (as per para 38 of the award) : " ...As already stated by me in an action for breach of contract, the cause of action is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was upheld by the learned Commissioner of Income-tax (Appeals) in his impugned orders dt. 26-12-1984. Hence the second appeal by the assessee. 5. We have heard Shri C. V. K. Prasad of Brahmaiah & Co., the learned advocate for the assessee, and Shri N. Santhanam, the learned Departmental Representative for the department. On behalf of the assessee a paper book containing 230 pages was filed before us. On pages 1 to 7 of the paper book copy of the agreement dt. 5-2-1977 entered into between the assessee-company and FCI was provided. On pages 9 to 11 the letter dt. 19-7-1980 demanding the payment of Rs. 11,07,176.33 from the assessee-company by the FCI was provided. At pages 13 to 18 a plaint copy filed in OS 756 of 1980 on the file of VI Additional Judge, City Civil Court, Hyderabad, was furnished. At pages 19 to 41 the written statement filed by the assessee-company in OS 756 of 1980, referred to above, was furnished. At page 43 to page 139 was provided the certified copy of the judgment dt. 28-3-1983 passed, inter alia, in OS 278 of 1982 on the file of Additional Chief Judge, City Civil Court, Hyderabad (the suit in OS 756 of 1980 was renumbered as such). At pages 141 to 143 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd binding on the buyer. In the event of the security deposit being insufficient or if the security has been wholly forfeited, the balance or the total sum recoverable, as the case may be, shall be deducted from any sum then due or which at any time thereafter may become due to the buyer under this or any other contract with the Food Corporation of India. Should that sum also not be sufficient to cover the full amount recoverable, the buyer shall pay to the Food Corporation of India on demand the balance due. " Shri C. V. K. Prasad stressed before us the term which constituted the last sentence of the term of contract extracted above which obliges the assessee-company to pay to the FCI on demand the balance due, should the security deposit was found to be insufficient to cover the full amount. It is the contention of Shri Prasad that in pursuance of the term of contract found in clause 1(c) of the agreement the assessee is obliged to make good the deficient demand made by the FCI against the assessee-company. Having accepted such a liability the assessee-company is quite within its rights to provide for the liability as it had incurred the liability on the date of demand, viz., 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount claimed, the difference could be included in the assessable income of the assessee for the year during which the final decision of the litigation was made. " Thus it can be seen, argued the learned DR that the loss claimed was not disputed. Further, there was a clear finding from the facts of that case that the loss was suffered by the assessee-firm in the accounting year relevant to asst. year 1953-54. However, the facts in that case and the present case before us are quite different. From the very beginning the liability was never admitted, but it was always disputed. Hence, the ratio of the said decision cannot be of any help to the assessee. Lastly, coming to this Tribunal decision in the case of Central Wines it can be seen that it has dealt with the claim for additional sales tax liability. This Tribunal held ordinarily though the liability to pay sales tax arises at the point of sale itself it was found by the Tribunal that just like any other tax liability even the sales tax liability is not a simple matter. There may be points of complexity on which the understanding of the provisions of liability by the assessee and the sales tax department could be different. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany in the accounting year relevant to asst. year 1981-82. In the first instance let us see the validity of the contention of the assessee that the liability to pay Rs. 11,07,176.33 arose even under the terms of the contract for which it had invited our attention to clause 1(c) which we have already extracted above. In our opinion a distinction is to be drawn between breach of a term in contract for which liquidated damages were prescribed and wholesale breach of contract itself. When the whole contract is broken there is no question of one of the terms of the contract governing the quantification of the damages. Further, in order to understand the real meaning of the agreement the terms of the agreement should be read as a whole and one of the terms should not be truncated from the other terms and its meaning should not be attempted to be found in an isolated manner. If we do that exercise it would lead us only to a misleading conception. The terms of the contract did not provide for the contingency as to how much damages are to be paid by the defaulting party if the contract as a whole is broken or contravened. Clause 1(c) certainly is not the clause dealing with any such situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract itself. As can be seen from the voluminous record produced on behalf of the assessee, the assessee-company never attempted to admit any part of the claim put forward by the FCI in which case the matter would have been otherwise to the extent of the admitted amount. In the case of Calcutta Co. Ltd. itself the assessee entered into foreign exchange contracts in 1952 with the Hindusthan Mercantile Bank. The difference payable by the assessee on the forward contract was determined in December 1952, but the assessee disputed its liability. That dispute was settled in 1955 and its account in the bank was debited in June 1955. The assessee claimed this loss amounting to Rs. 80,491 as revenue expenditure in the asst. year 1956-57. The Calcutta High Court ultimately held that this amount can be held as revenue expenditure. The gist of this decision is as follows : " That though the claim related to the breach alleged to have occurred in 1952, the settlement of liability was done by agreement between the parties in the year of account relevant to the asst. year 1956-57. The amount of Rs. 80,491 was allowable in the asst. year 1956-57. " For applying the above ratio to the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the sale of these tractors. A demand at the rate of Rs. 930 per tractor was made by the principal, but the assessee did not agree to this. Subsequently, on May 11, 1972 the matter was settled and the assessee was asked to pay infringement commission to dealers in other districts at Rs. 650 per tractor. The assessee accepted the claim, paid the amount which worked out to Rs. 32,650 and claimed deduction of the same. The assessee claimed Rs. 32,650 as deduction in the asst. year 1972-73. The Allahabad High Court held that the liability was of a contractual nature and crystallised only when the assessee agreed to the payment of Rs. 650 per tractor, and not on any point of time earlier. Therefore, the deduction of the sum of Rs. 32,650 on account of the infringement commission in the accounting period relevant to the asst. year 1972-73 could not be allowed as the liability was not arising in the relevant a/c. year. The ratio of the case cited above fully applies to the facts of the case under consideration. Here also the liability is contractual and till now there is no admission of the liability and so there is no question of considering the deductibility of any part of the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
